AUDITED FINANCIAL STATEMENTS. RenaissanceRe Specialty Risks Ltd. and Subsidiary. December 31, 2015 and 2014

Transcription

1 AUDITED FINANCIAL STATEMENTS RenaissanceRe Specialty Risks Ltd. and Subsidiary December 31, 2015 and 2014

2 Ernst & Young Ltd. 3 Bermudiana Road Hamilton HM08, Bermuda P.O. Box HM 463 Hamilton, HM BX, Bermuda Tel: Fax: REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RENAISSANCERE SPECIALTY RISKS LTD. AND SUBSIDIARY We have audited the accompanying consolidated financial statements of RenaissanceRe Specialty Risks Ltd. and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in shareholder s equity and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. A member firm of Ernst & Young Global Limited

3 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RenaissanceRe Specialty Risks Ltd. and Subsidiary at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Hamilton, Bermuda April 8, 2016 A member firm of Ernst & Young Global Limited

4 CONSOLIDATED BALANCE SHEETS AT (in thousands of United States Dollars) Assets Fixed maturity investments trading, at fair value (Amortized cost $467,862 and $81,340 at December 31, 2015 and December 31, 2014, respectively) (Notes 4 and 5) $ 458,904 $ 81,293 Short term investments, at fair value (Notes 4 and 5) 152,353 34,853 Investment in RIHL, under equity method (Note 4) 161,037 51,413 Investment in RIHL II, under equity method (Note 4) 137,033 32,597 Investment in ROIHL II, under equity method (Note 4) 222, ,733 Investment in ROIHL III, under equity method (Note 4) 68,492 26,886 Total investments 1,200, ,775 Cash and cash equivalents 34,774 7,722 Premiums receivable (Note 8) 134,466 55,744 Prepaid reinsurance premiums (Note 6) 18,606 5,590 Reinsurance recoverable (Notes 6, 7 and 8) 35,771 39,868 Accrued investment income 3, Deferred acquisition costs 40,937 20,437 Receivable for investments sold 343 Investment in affiliate (Note 8) 180,000 Other assets Total assets $ 1,469,044 $ 837,660 Liabilities and Shareholder s Equity Liabilities Reserve for claims and claim expenses (Notes 7 and 8) $ 594,542 $ 127,820 Unearned premiums 115,762 59,667 Reinsurance balances payable (Note 8) 23,906 6,868 Due to affiliates, net (Note 8) 6,604 18,937 Payable for investments purchased 10,308 Accounts payable and accrued liabilities 2, Total liabilities 753, ,428 Shareholder s Equity Common shares: $1.00 par value 500,000 shares authorized; 400,000 issued and outstanding at December 31, 2015 and Accumulated other comprehensive income (loss) (Note 4) 239 (120) Additional paid-in capital (Note 9) 799, ,529 Retained earnings (84,477) 163,423 Total shareholder s equity 715, ,232 Total liabilities and shareholder s equity $ 1,469,044 $ 837,660 See accompanying notes to the consolidated financial statements 1

5 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED (in thousands of United States Dollars) Revenues Gross premiums written (Notes 6 and 8) $ 190,242 $ 118,292 Net premiums written (Note 6) $ 165,109 $ 108,323 Decrease (increase) in net unearned premiums 24,794 (20,937) Net premiums earned (Notes 6 and 8) 189,903 87,386 Net investment income (Note 4) 12, Net foreign exchange gains Equity in earnings of RIHL (Note 4) 1,424 1,943 Equity in (losses) earnings of RIHL II (Note 4) (264) 2,066 Equity in (losses) earnings of ROIHL II (Note 4) (9,581) 32,003 Equity in earnings of ROIHL III (Note 4) Other income (loss) (Note 8) 1,245 (2,000) Net realized and unrealized (losses) gains on investments (Note 4) (20,262) 340 Total revenues 175, ,472 Expenses Net claims and claim expenses incurred (Notes 6, 7 and 8) 62,232 39,647 Acquisition expenses 50,037 21,130 Operational expenses (Note 8) 13,604 9,865 Corporate expenses Integration-related expenses (Note 3) 14,187 Amortization of other intangible assets (Note 3) 4,735 Impairment of goodwill and other intangible assets (Note 3) 138,725 Total expenses 283,769 70,765 Net (loss) income $ (107,900) $ 51,707 See accompanying notes to the consolidated financial statements 2

6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER S EQUITY FOR THE YEARS ENDED (in thousands of United States Dollars) Common shares $ 400 $ 400 Accumulated other comprehensive income Balance January 1 (120) Change in net unrealized gains (losses) on investments 359 (120) Balance December (120) Additional paid-in capital Balance January 1 460,529 91,679 Contribution of entity under common control (Notes 3 and 9) 878,655 Contribution of capital (Notes 8 and 9) 368,850 Return of capital (Note 9) (540,000) Balance December , ,529 Retained earnings Balance January 1 163, ,716 Net (loss) income (107,900) 51,707 Dividends declared (Note 9) (140,000) Balance December 31 (84,477) 163,423 Total shareholder s equity $ 715,346 $ 624,232 See accompanying notes to the consolidated financial statements 3

7 CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED (in thousands of United States Dollars) Cash flows provided by operating activities Net (loss) income $ (107,900) $ 51,707 Adjustments to reconcile net (loss) income to net cash provided by operating activities Amortization and accretion (4,157) 841 Amortization of other intangible assets 4,735 Impairment of goodwill and other intangible assets 138,725 Equity in undistributed earnings of RIHL (1,424) (1,943) Equity in undistributed losses (earnings) of RIHL II 264 (2,066) Equity in undistributed losses (earnings) of ROIHL II 9,581 (32,003) Equity in undistributed (earnings) losses of ROIHL III (265) 16 Net realized and unrealized losses (gains) on investments 20,262 (340) Change in: Premiums receivable (10,261) (23,938) Prepaid reinsurance premiums (10,067) (5,199) Reinsurance recoverable 4,385 4,265 Accrued investment income 7, Deferred acquisition costs (20,500) (9,582) Reserve for claims and claim expenses (34,469) 26,163 Unearned premiums (15,150) 26,136 Reinsurance balances payable 16,975 (3,385) Due to affiliates, net (10,371) 14,547 Accounts payable and accrued liabilities 2, Other, net 87,761 (163) Net cash provided by operating activities 78,431 45,172 Cash flows provided by (used in) investing activities Proceeds from sales and maturities of fixed maturity investments trading 1,351, ,685 Purchases of fixed maturity investments trading (927,749) (148,673) Net sales of short term investments 7,862 (18,154) Purchases of investment in RIHL (346,200) (5,000) Purchases of investment in RIHL II (246,700) (5,000) Proceeds from redemptions of investment in ROIHL II 70,605 Purchases of investment in ROIHL II (2,500) Proceeds from redemptions of investment in ROIHL III 8,659 Investment in affiliate 180,000 (90,000) Cash received in net asset transfer of entity under common control 203,441 Net cash provided by (used in) investing activities 298,621 (146,142) Cash flows (used in) provided by financing activities Contribution of capital 100,000 Return of capital (210,000) Dividends paid (140,000) Net cash (used in) provided by financing activities (350,000) 100,000 Net increase (decrease) in cash and cash equivalents 27,052 (970) Cash and cash equivalents, beginning of period 7,722 8,692 Cash and cash equivalents, end of period $ 34,774 $ 7,722 See accompanying notes to the consolidated financial statements 4

8 NOTE 1. ORGANIZATION RenaissanceRe Specialty Risks Ltd. ( RenaissanceRe Specialty Risks ) was incorporated under the laws of Bermuda in January 1996, and is a wholly-owned subsidiary of RenRe Insurance Holdings Ltd. ( RenRe Insurance ). RenRe Insurance is a wholly-owned subsidiary of RenaissanceRe Holdings Ltd. ( RenaissanceRe ). On March 2, 2015, RenaissanceRe completed its acquisition of Platinum Underwriters Holdings, Ltd. ( Platinum ) and as a result, Platinum and its subsidiaries, including Platinum Underwriters Bermuda, Ltd. ( Platinum Bermuda ), became wholly-owned subsidiaries of RenaissanceRe. In connection with the acquisition of Platinum, RenaissanceRe undertook an intercompany restructuring and as a result, Platinum Bermuda became a wholly-owned subsidiary of RenaissanceRe Specialty Risks. The intercompany restructuring legally took place on July 1, 2015, however, for accounting purposes, and in accordance with Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) Topic Business Combinations, it was effective March 2, RenaissanceRe Specialty Risks is a Class 3B Bermuda-domiciled excess and surplus lines insurance company that is listed on the National Association of Insurance Commissioners International Insurance Department s Quarterly List of Alien Insurers as an eligible surplus lines insurer. Platinum Bermuda, a Class 4 Bermuda-domiciled insurer, was incorporated under the laws of Bermuda in 2002 and provided reinsurance coverage on a worldwide basis. Platinum Bermuda is not currently writing new business. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation These consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States ( GAAP ) and include the accounts of RenaissanceRe Specialty Risks and its wholly-owned subsidiary, Platinum Bermuda, which are collectively referred to herein as the Company. All significant intercompany accounts and transactions have been eliminated from these statements. In accordance with FASB ASC Topic Business Combinations, the Company recognized the net asset transfer of Platinum Bermuda, an entity under common control, at GAAP book value as of March 2, 2015, to RenaissanceRe Specialty Risks on March 2, See Note 3. Acquisition of Platinum and Note 9. Shareholder s Equity for additional information related to Platinum Bermuda. Use of Estimates in Financial Statements The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The major estimates reflected in the Company s consolidated financial statements include, but are not limited to, the reserve for claims and claim expenses, reinsurance recoverables, including allowances for reinsurance recoverables deemed uncollectible, estimates of written and earned premiums and fair value, including the fair value of investments. 5

9 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES, cont d. Premiums and Related Expenses Premiums are recognized as income, net of any applicable reinsurance or retrocessional coverage purchased, over the terms of the related contracts and policies. Premiums written are based on contract and policy terms and include estimates based on information received from both insureds and ceding companies. Subsequent differences arising on such estimates are recorded in the period in which they are determined. Unearned premiums represent the portion of premiums written that relate to the unexpired terms of contracts and policies in force. Amounts are computed by pro rata methods based on statistical data or reports received from ceding companies. Reinstatement premiums are estimated after the occurrence of a significant loss and are recorded in accordance with the contract terms based upon paid losses and case reserves. Reinstatement premiums are earned when written. Acquisition costs are incurred when a contract or policy is issued and only the costs directly related to the successful acquisition of new and renewal contract or policies are deferred and amortized over the same period in which the related premiums are earned. Acquisition costs, are shown net of commissions and profit commission earned on ceded reinsurance, and consist principally of commissions, brokerage expenses and United States federal excise taxes incurred at the time a contract or policy is issued. Deferred policy acquisition costs are limited to their estimated realizable value based on the related unearned premiums. Anticipated claims and claim expenses, based on historical and current experience, and anticipated investment income related to those premiums are considered in determining the recoverability of deferred acquisition costs. Claims and Claim Expenses The reserve for claims and claim expenses includes estimates for unpaid claims and claim expenses on reported losses as well as an estimate of losses incurred but not reported ( IBNR ). The reserve is based on individual claims, case reserves and other reserve estimates reported by insureds and ceding companies as well as management estimates of ultimate losses. Inherent in the estimates of ultimate losses are expected trends in claim severity and frequency and other factors which could vary significantly as claims are settled. Also, during the past few years, the Company has increased its specialty reinsurance business, but does not have the benefit of a significant amount of its own historical experience in certain of these lines of business. Accordingly, the setting and reserving for incurred losses in these lines of business could be subject to greater variability. Ultimate losses may vary materially from the amounts provided in the consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments, if any, are reflected in the consolidated statements of operations in the period in which they become known and are accounted for as changes in estimates. Reinsurance Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. If the Company determines that adjustments to earlier estimates are appropriate, such adjustments are recorded in the period in which they are determined. The Company evaluates the financial condition of its reinsurers through internal evaluation by senior management. Amounts recoverable from reinsurers are recorded net of a valuation allowance for estimated uncollectible recoveries. 6

10 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES, cont d. Investments, Cash and Cash Equivalents Fixed Maturity Investments Investments in fixed maturities are classified as trading and are reported at fair value. Investment transactions are recorded on the trade date with balances pending settlement reflected in the balance sheet as a receivable for investments sold or a payable for investments purchased. Net investment income (loss) includes interest and dividend income together with amortization of market premiums and discounts and is net of investment management and custody fees. The amortization of premiums and accretion of discounts for fixed maturity securities is computed using the effective yield method. For mortgage-backed securities and other holdings for which there is prepayment risk, prepayment assumptions are evaluated quarterly and revised as necessary. Any adjustments required due to the change in effective yields and maturities are recognized on a prospective basis through yield adjustments. Fair values of investments are based on quoted market prices, or when such prices are not available, by reference to broker or underwriter bid indications and/or internal pricing valuation techniques. The net unrealized appreciation or depreciation on fixed maturity investments trading is included in net realized and unrealized (losses) gains on investments in the consolidated statements of operations. Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method. Short Term Investments Short term investments, which are managed as part of the Company s investment portfolio and have a maturity of one year or less when purchased, are carried at amortized cost, which approximates fair value. The net unrealized appreciation or depreciation on short term investments is included in net realized and unrealized (losses) gains on investments in the consolidated statements of operations. Renaissance Investment Holdings Ltd. ( RIHL ) The Company s investments include an interest in the mandatorily redeemable preferred shares of RIHL, a related party and wholly-owned subsidiary of RenaissanceRe. RIHL was formed to enhance administrative efficiency and take advantage of the increased benefits and reduced costs ordinarily associated with the management of large investment portfolios of different subsidiaries in the same group. Through RIHL, the Company invests in a diversified portfolio of highly liquid fixed income securities and certain derivative products, both of which are recorded at fair value. The Company may redeem its interest in RIHL at the current net asset value no more frequently than monthly. Third party service providers perform custodial functions in respect of RIHL, including valuation of the investment assets held through RIHL. Currently, external investment managers manage the assets held through RIHL, pursuant to written investment guidelines. Renaissance Investment Holdings II Ltd. ( RIHL II ) The Company s investments include an interest in the mandatorily redeemable preferred shares of RIHL II, a related party and wholly-owned subsidiary of RenaissanceRe. RIHL II was formed to enhance administrative efficiency and take advantage of the increased benefits and reduced costs ordinarily associated with the management of large investment portfolios of different subsidiaries in the same group. Through RIHL II, the Company invests in a diversified portfolio of fixed income securities and certain derivative products, both of which are recorded at fair value. The Company may redeem its interest in RIHL II at the current net asset value no more frequently than bi-monthly. Third party service providers perform custodial functions in respect of RIHL II, including valuation of the investment assets held through RIHL II. Currently, external investment managers manage the assets held through RIHL II, pursuant to written investment guidelines. 7

11 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES, cont d. Renaissance Other Investments Holdings II Ltd. ( ROIHL II ) The Company s investments include an interest in the mandatorily redeemable preferred shares of ROIHL II, a related party and wholly-owned subsidiary of RenaissanceRe. ROIHL II was established to hold RenaissanceRe Ventures Ltd., a Bermuda domiciled company, which invests in certain strategic initiatives, including, but not limited to: equity investments classified as equity investments trading; investments in which the investor has significant influence over the operating and financial policies of the investee classified as investments in other ventures, under equity method; and certain other strategic investments. Renaissance Other Investments Holdings III Ltd. ( ROIHL III ) The Company s investments include an interest in the mandatorily redeemable preferred shares of ROIHL III, a related party and wholly-owned subsidiary of RenaissanceRe. ROIHL III was established to hold Renaissance Investment Management Company Limited, a Bermuda domiciled investment management company, which invests in private equity and hedge fund investments. RIHL, RIHL II, ROIHL II and ROIHL III, at their sole discretion may require any shareholder to surrender some, or all of such shareholder s shares for redemption upon prior written notice in accordance with the normal redemption notice period. In addition, RIHL, RIHL II and ROIHL III shall redeem all outstanding shares by a date, no later than December 31, ROIHL II shall redeem its outstanding shares by a date, no later than 30 years subsequent to the issuance of such shares. The Company s ownership in RIHL, RIHL II, ROIHL II and ROIHL III are recorded using the equity method of accounting. The Company s share of RIHL, RIHL II, ROIHL II and ROIHL III s net income (loss) is included in the consolidated statements of operations. Any decline in the value of the Company s share of RIHL, RIHL II, ROIHL II or ROIHL III considered by management to be other-than-temporary is charged to earnings in the period in which it is determined. Cash and Cash Equivalents Cash equivalents include money market instruments with a maturity of ninety days or less when purchased. Fair Value The Company accounts for certain of its assets and liabilities at fair value in accordance with FASB ASC Topic Fair Value Measurements and Disclosures. The Company recognizes the change in unrealized gains and losses arising from changes in fair value in its consolidated statements of operations. Business Combinations, Goodwill and Other Intangible Assets The Company accounts for business combinations in accordance with FASB ASC Topic Business Combinations, and goodwill and other intangible assets that arise from business combinations in accordance with FASB ASC Topic Intangibles - Goodwill and Other. A purchase price that is in excess of the fair value of the net assets acquired arising from a business combination is recorded as goodwill, and is not amortized. Other intangible assets with a finite life are amortized over the estimated useful life of the asset. Other intangible assets with an indefinite useful life are not amortized. 8

12 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES, cont d. Goodwill and other indefinite life intangible assets are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Finite life intangible assets are reviewed for indicators of impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable, and tested for impairment if appropriate. For purposes of the annual impairment evaluation, goodwill is assigned to the applicable reporting unit of the acquired entities giving rise to the goodwill. The Company has established the beginning of the fourth quarter as the date for performing its annual impairment tests. The Company has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. Under this option, the Company would not be required to calculate the fair value of a reporting unit unless the Company determines, based on its qualitative assessment, that it is more likely than not that a reporting unit s fair value is less than its carrying amount. If goodwill or other intangible assets are impaired, they are written down to their estimated fair value with a corresponding expense reflected in the Company s consolidated statements of operations. In accordance with FASB ASC Topic Business Combinations, transactions between entities under common control are to be initially recognized at GAAP book value by the receiving entity at the transfer date and the financial statements of the receiving entity shall report the results of operations for the period in which the transfer occurs as though the transfer of net assets had occurred at the beginning of the earliest period presented. Financial statements and financial information presented for prior years shall be retrospectively adjusted to furnish comparative information. However, the comparative information shall only be adjusted for periods during which the entities were under common control. Since Platinum Bermuda was not under common control prior to March 2, 2015, the financial condition and results of operations of the Company at December 31, 2015 and for the year then ended, include the results of operations of Platinum Bermuda from March 2, Similarly, the comparative information as at December 31, 2014 and for the year then ended has not been adjusted to reflect the financial condition and results of operations of Platinum Bermuda and represents only the financial condition and results of operations of RenaissanceRe Specialty Risks. See Note 3. Acquisition of Platinum for additional information related to the acquisition of Platinum and the net asset transfer of Platinum Bermuda. Foreign Exchange The Company s functional currency is the United States ( U.S. ) dollar. Revenues and expenses denominated in foreign currencies are translated at the prevailing exchange rate at the transaction date. Monetary assets and liabilities denominated in foreign currencies are remeasured at exchange rates in effect at the balance sheet date, which may result in the recognition of exchange gains or losses which are included in the determination of net (loss) income. 9

13 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES, cont d. Recently Issued Accounting Pronouncements Not Yet Adopted Revenue from Contracts with Customers In May 2014, the FASB issued ASU No , Revenue from Contracts with Customers ( ASU ). ASU provides comprehensive guidance on the recognition of revenue from customers arising from the transfer of goods and services. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU was to be effective for public business entities in annual and interim periods beginning after December 15, 2016, however in July 2015, the FASB decided to defer by one year the effective dates of ASU , and as a result, ASU will be effective for public business entities in annual and interim period beginning after December 15, ASU was to be effective for non-public business entities for fiscal years beginning after December 15, 2017, and interim periods beginning after December 15, 2018, however in July 2015, the FASB decided to defer by one year the effective dates of ASU , and as a result, ASU will be effective for non-public business entities for fiscal years beginning after December 15, Early adoption is permitted only as of a fiscal year beginning after December 15, 2016, and interim periods within fiscal years beginning one year after the fiscal year in which an entity first applies the guidance in ASU The Company is currently evaluating the impact of this guidance; however, it is not expected to have a material impact on the Company s consolidated statements of operations and financial position. Amendments to the Consolidation Analysis In February 2015, the FASB issued ASU No , Amendments to the Consolidation Analysis ( ASU ). ASU will affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under ASU ASU set forth amendments: modifying the evaluation of whether limited partnerships and similar legal entities are VIEs; eliminating the presumption that a general partner should consolidate a limited partnership; affecting the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangement and related party relationships; and providing a scope exception from consolidation guidance for reporting entities with interests in certain investment funds. ASU is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, For all other entities, the amendments in ASU are effective for fiscal years beginning after December 15, Early adoption is permitted. The Company is currently evaluating the impact of this guidance; however, it is not expected to have a material impact on the Company s consolidated statements of operations and financial position. 10

14 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES, cont d. Disclosures about Short-Duration Contracts In May 2015, the FASB issued ASU No , Disclosures about Short-Duration Contracts ( ASU ). ASU requires insurance entities to disclose for annual reporting periods additional information about the liability for unpaid claims and claim adjustment expenses, including: (1) incurred and paid claims development information by accident year, on a net basis, for the number of years for which claims incurred typically remain outstanding, not exceeding 10 years; (2) a reconciliation of incurred and paid claims development information to the aggregate carry amount of the liability for claims and claim adjustment expenses, with separate disclosure of reinsurance recoverable on unpaid claims for each period presented in the statement of financial position; (3) for each accident year presented of incurred claims development information, the total of incurred but not reported liabilities plus expected development on reported claims including in the liability for unpaid claims and claim adjustment expenses, accompanied by a description of the reserving methodologies; (4) for each accident year presented of incurred claims development information, quantitative information about claim frequency accompanied by a qualitative description of methodologies used for determining claim frequency information; and (5) for all claims, the average annual percentage payout of incurred claims by age for the same number of accident years presented in (3) and (4) above. ASU also requires insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including the reasons for the change and the effects on the financial statements. In addition, ASU requires insurance entities to disclose for annual and interim reporting periods a rollforward of the liability for unpaid claims and claim adjustment expenses. ASU is effective for public business entities in annual periods beginning after December 31, 2015, and interim periods within annual periods beginning after December 31, For all other entities, the amendments in ASU are effective for annual periods beginning after December 15, Early adoption is permitted. ASU should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. As this guidance is disclosure-related only, the adoption of this guidance is not expected to have a material impact on the Company s consolidated statements of operations and financial position. Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued ASU No , Recognition and Measurement of Financial Assets and Financial Liabilities ( ASU ). ASU requires equity investments (except those accounted for under the equity method of accounting or those that result in the consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, simplifies the impairment assessment of equity investments without readily determinable values by requiring a qualitative assessment to identify impairment, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liabilities in accordance with the fair value option, requires the separate presentation of financial assets and financial liabilities by measurement category and for form of financial asset on the balance sheet or the accompanying notes to the financial statements and clarifies that the reporting organization should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the organization s other deferred tax assets. ASU is effective for public business entities in annual and interim periods beginning after December 15, For all other entities, the amendments in ASU are effective for fiscal years beginning after December 15, All entities that are not public business entities may adopt the amendments in ASU earlier as of the fiscal years beginning after December 15, Earlier adoption is generally not permitted, except for certain specific provisions of ASU The Company is currently evaluating the impact of this guidance; however, it is not expected to have a material impact on the Company s consolidated statements of operations and financial position. 11

15 NOTE 3. ACQUISITION OF PLATINUM On March 2, 2015, RenaissanceRe acquired 100% of the outstanding common shares of Platinum for $76 per Platinum common share, or aggregate consideration of $1.9 billion. In connection with an intercompany restructuring, effective July 1, 2015, Platinum was merged with RenaissanceRe, with RenaissanceRe continuing as the surviving company. Prior to the closing of the acquisition of Platinum, Platinum was a publicly traded company listed on the New York Stock Exchange and headquartered in Bermuda. Platinum, through its wholly owned subsidiaries, provided property and casualty reinsurance coverage through reinsurance brokers to insurers and select reinsurers on a worldwide basis. RenaissanceRe believes the acquisition of Platinum has benefited the combined companies clients through an expanded product offering and enhanced broker relationships and it has also accelerated the growth of RenaissanceRe s U.S. specialty and casualty reinsurance platform. In connection with the acquisition of Platinum, RenaissanceRe undertook an intercompany restructuring and as a result, effective March 2, 2015, Platinum Bermuda, a wholly-owned subsidiary of Platinum, became a wholly-owned subsidiary of RenaissanceRe Specialty Risks. The net assets of Platinum Bermuda were transferred to RenaissanceRe Specialty Risks on March 2, 2015 at GAAP book value and were accounted for as a business combination with an entity under common control. The net assets transferred at March 2, 2015 were as follows: Assets At March 2, 2015 Fixed maturity investments trading, at fair value $ 819,306 Short term investments, at fair value 125,342 Total investments 944,648 Cash and cash equivalents 203,441 Premiums receivable 68,461 Prepaid reinsurance premiums 2,949 Reinsurance recoverable 288 Accrued investment income 10,693 Due from affiliates 1,962 Other assets 83,070 Goodwill and other intangible assets 143,460 Total assets $ 1,458,972 Liabilities Reserve for claims and claim expenses $ 501,191 Unearned premiums 71,245 Reinsurance balances payable 63 Accounts payable and accrued liabilities 7,818 Total liabilities 580,317 Net assets $ 878,655 12

16 NOTE 3. ACQUISITION OF PLATINUM, cont d. The following table shows an analysis of goodwill and other intangible assets: Balance as of December 31, 2014 Goodwill Other intangible assets Gross amount $ $ $ Accumulated impairment losses and amortization Total Assumed via transfer of entity under common control 97,332 46, ,460 Amortization (4,735) (4,735) Impairment losses (97,332) (41,393) (138,725) Balance as of December 31, 2015 Gross amount 97,332 46, ,460 Accumulated impairment losses and amortization (97,332) (46,128) (143,460) $ $ $ As a result of the acquisition of Platinum, and subsequent intercompany restructuring, RenaissanceRe allocated goodwill and other intangible assets related to the acquisition of Platinum to Platinum Bermuda. Consequently, Platinum Bermuda recognized $46.1 million of identifiable finite lived intangible assets and $97.3 million of goodwill primarily attributable to Platinum s assembled workforce and synergies expected to result upon integration of Platinum into RenaissanceRe s operations. The identifiable finite lived intangible assets included non-contractual customer relationships, renewal rights, trade names, software and the value of business acquired (the difference between the risk-adjusted future loss and expenses, discounted to present value and the unearned premium reserve, was estimated to be the value of business added). These assets were transferred to RenaissanceRe Specialty Risks in accordance with FASB ASC Topic Business Combinations for transactions between entities under common control. During the fourth quarter of 2015, Platinum Bermuda recognized, on a stand-alone basis, impairment losses of $97.3 million and $41.4 million related to goodwill and other intangible assets, respectively. In accordance with the Company s established accounting policy, the beginning of the fourth quarter was used as the date for performing the annual impairment test. The Company first assessed qualitative factors to determine whether it was necessary to perform a quantitative impairment test. Based on its qualitative assessment, the Company determined it was more likely than not that the fair value of the goodwill and other intangible assets were less than their respective carrying amounts. The qualitative assessment focused on management s decision to renew business previously written by Platinum Bermuda with other companies owned by RenaissanceRe, reduce the capital of Platinum Bermuda, subject to customary regulatory approvals, and to essentially place Platinum Bermuda into runoff. In light of the qualitative assessment, the Company performed a quantitative analysis using a discounted cash flow model and concluded that the full amount of the goodwill and other intangible assets were fully impaired within Platinum Bermuda. On a consolidated basis for group reporting under GAAP, RenaissanceRe reinstated the goodwill and other intangible assets associated with Platinum Bermuda as management determined that these assets were not impaired on a consolidated basis. In connection with the acquisition of Platinum, the Company incurred integration-related expenses of $14.2 million during 2015, principally due to compensation-related costs associated with terminating employees of Platinum. 13

17 NOTE 4. INVESTMENTS Fixed Maturity Investments Trading The following table summarizes the fair value of fixed maturity investments trading: At December 31, U.S. treasuries $ 163,889 $ 64,213 Non-U.S. government (Sovereign debt) 54,619 17,080 Corporate 196,210 Agency mortgage-backed 14,919 Commercial mortgage-backed 10,596 Asset-backed 18,671 Total fixed maturity investments trading $ 458,904 $ 81,293 Contractual maturities of fixed maturity investments are described in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized At December 31, 2015 Cost Fair Value Due in less than one year $ 32,992 $ 32,477 Due after one through five years 308, ,923 Due after five through ten years 79,272 75,538 Due after ten years 2,830 2,780 Mortgage-backed 25,706 25,515 Asset-backed 18,786 18,671 Total $ 467,862 $ 458,904 Pledged Investments At December 31, 2015, $361.8 million ( $71.8 million) of cash and investments at fair value were on deposit with, or in trust accounts for the benefit of various counterparties, including with respect to RenaissanceRe s standby letter of credit facility and bilateral letter of credit facility. Of this amount, $25.0 million ( $23.7 million) is on deposit with, or in trust accounts for the benefit of, U.S. state regulatory authorities. 14

18 NOTE 4. INVESTMENTS, cont d. Net Investment Income The components of net investment income are as follows: Year ended December 31, Fixed maturity investments $ 14,134 $ 560 Short term investments (28) 22 Cash and cash equivalents , Investment expenses (1,682) (323) Net investment income $ 12,467 $ 261 Net Realized and Unrealized (Losses) Gains on Investments Net realized and unrealized (losses) gains on investments are as follows: Year ended December 31, Gross realized gains $ 3,899 $ 191 Gross realized losses (17,136) (114) Net realized (losses) gains on fixed maturity investments (13,237) 77 Net unrealized (losses) gains on fixed maturity investments trading (7,025) 263 Net realized and unrealized (losses) gains on investments $ (20,262) $ 340 RIHL At December 31, 2015, the Company owned 28.8% of RIHL s mandatorily redeemable preferred shares ( %). The dollar weighted average rating of the securities held through RIHL is AA. The table below shows the Company s share of RIHL s net assets: At December 31, Fixed maturity investments trading $ 158,539 $ 50,669 Short term investments 11,413 2,014 Accrued investment income Net unsettled trades (9,555) (1,562) Other liabilities (117) (3) Investment in RIHL, under equity method $ 161,037 $ 51,413 15

19 NOTE 4. INVESTMENTS, cont d. The following table summarizes the fair value of fixed maturity investments trading included in the Company s share of RIHL: At December 31, U.S. treasuries $ 24,078 $ 4,617 Agencies 1,541 1,160 Municipal 2,184 Non-U.S. government (Sovereign debt) Non-U.S. government-backed corporate Corporate 49,858 20,137 Agency mortgage-backed 23,204 6,408 Commercial mortgage-backed 53,465 17,971 Asset-backed 3,545 Total $ 158,539 $ 50,669 Contractual maturities of fixed maturity investments trading included in the Company s share of RIHL s net assets are described in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized At December 31, 2015 Cost Fair Value Due in less than one year $ 75 $ 75 Due after one through five years 51,452 50,902 Due after five through ten years 22,514 22,206 Due after ten years 5,264 5,142 Mortgage-backed 77,302 76,669 Asset-backed 3,549 3,545 Total $ 160,156 $ 158,539 The Company s equity in earnings on its investment in RIHL is as follows: Year ended December 31, Net investment income $ 3,333 $ 1,318 Net realized gains on fixed maturity investments trading Net unrealized (losses) gains on fixed maturity investments trading (2,148) 822 Net realized and unrealized losses on derivatives (145) (505) Equity in earnings of RIHL $ 1,424 $ 1,943 16

20 NOTE 4. INVESTMENTS, cont d. RIHL II At December 31, 2015 the Company owned 34.1% of RIHL II s mandatorily redeemable preferred shares ( %). The dollar weighted average rating of the securities held through RIHL II is AA. The table below shows the Company s share of RIHL II s net assets: At December 31, Fixed maturity investments trading $ 134,752 $ 31,740 Short term investments 12,621 6,489 Cash and cash equivalents Accrued investment income Net unsettled trades (11,071) (5,902) Other (liabilities) assets (72) 34 Investment in RIHL II, under equity method $ 137,033 $ 32,597 The following table summarizes the fair value of fixed maturity investments trading included in the Company s share of RIHL II: At December 31, U.S. treasuries $ 39,590 $ 6,435 Agencies 488 Municipal 1,970 Non-U.S. government (Sovereign debt) 1, Non-U.S. government-backed corporate 1, Corporate 35,907 12,123 Agency mortgage-backed 34,162 6,586 Non-agency mortgage-backed 1, Commercial mortgage-backed 13,321 4,030 Asset-backed 5, Total $ 134,752 $ 31,740 17

21 NOTE 4. INVESTMENTS, cont d. Contractual maturities of fixed maturity investments trading included in the Company s share of RIHL II s net assets are described in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized At December 31, 2015 Cost Fair Value Due in less than one year $ 457 $ 457 Due after one through five years 35,753 35,525 Due after five through ten years 24,559 24,364 Due after ten years 20,499 19,817 Mortgage-backed 48,848 48,623 Asset-backed 6,016 5,966 Total $ 136,132 $ 134,752 The Company s equity in (losses) earnings on its investment in RIHL II is as follows: Year ended December 31, Net investment income $ 2,633 $ 832 Net realized gains on fixed maturity investments trading Net unrealized (losses) gains on fixed maturity investments trading (3,420) 765 Net realized and unrealized losses on derivatives (80) (95) Net foreign exchange gains Equity in (losses) earnings of RIHL II $ (264) $ 2,066 ROIHL II At December 31, 2015, the Company owned 100.0% ( %) of ROIHL II s mandatorily redeemable preferred shares. See Note 9. Shareholder s Equity for additional information with respect to ROIHL II. The table below shows the Company s share of ROIHL II s net assets: At December 31, Short term investments $ 353 $ 209 Equity investments trading 152, ,607 Other investments 31,846 44,525 Investments in other ventures 27,802 25,172 Cash and cash equivalents Other assets, net (1) 10,471 28,865 Total $ 222,982 $ 300,733 (1) Included in other assets, net of $10.5 million are notes receivable of $11.6 million from certain strategic relationships ( $28.9 million and $16.1 million, respectively). 18

22 NOTE 4. INVESTMENTS, cont d. The following table summarizes the fair value of equity investments trading included in the Company s share of ROIHL II: At December 31, Financials $ 152,216 $ 201,607 The following table summarizes the fair value of other investments included in the Company s share of ROIHL II: At December 31, Private equity partnerships $ 31,846 $ 44,525 The following table summarizes the investments in other ventures, under equity method, included in the Company s share of ROIHL II: At December 31, Tower Hill $ 19,981 $ 18,991 Tower Hill Signature 7,315 5,692 US Coastal Total $ 27,802 $ 25,172 Each of Tower Hill Holdings, Inc. ( Tower Hill ) and Tower Hill Signature Holdings, Inc. ( Tower Hill Signature ), is an insurance holding company, and is the parent of a number of insurance companies which write residential property insurance in Florida. US Coastal Holdings, LLC. ( US Coastal ) is an insurance holding company, and is the parent of an insurance company which writes personal lines products in the northeast U.S. The Company s equity in (losses) earnings on its investment in ROIHL II is as follows: Year ended December 31, Net investment (loss) income $ (7,843) $ 796 Equity in earnings of other ventures 2,693 1,544 Other income (loss) 460 (214) Net realized and unrealized (losses) gains on investments (4,806) 29,965 Operating expenses (85) (88) Equity in (losses) earnings of ROIHL II $ (9,581) $ 32,003 Included in equity in (losses) earnings of ROIHL II is $12.5 million of unrealized losses for the year ended December 31, 2015 ( gains of $28.4 million). In addition, included in accumulated other comprehensive income (loss) at December 31, 2015 is income of $0.2 million related to the Company s investment in ROIHL II ( loss of $0.1 million). 19

23 NOTE 4. INVESTMENTS, cont d. ROIHL III At December 31, 2015, the Company owned 31.6% ( %) of ROIHL III s mandatorily redeemable preferred shares. The table below shows the Company s share of ROIHL III s net assets: At December 31, Short term investments $ 7,846 $ 1,906 Other investments 57,398 23,468 Cash and cash equivalents 70 1 Receivable for investments sold Receivable from the Company (1) 3,158 1,500 Other liabilities (2) (1) Total $ 68,492 $ 26,886 (1) ROIHL III prepaid the Company in advance of a planned redemption by the Company on January 1, 2016 of $3.2 million of its investment in ROIHL III ( $1.5 million). Included in due to affiliates, net on the Company s consolidated balance sheet at December 31, 2015 is the offsetting payable to ROIHL III in the amount of $3.2 million ( $1.5 million). The Company settled the redemption of $3.2 million on January 4, 2016 ( $1.5 million on January 2, 2015), from its investment in ROIHL III and the corresponding amount in due to affiliates, net. The following table summarizes the fair value of other investments included in the Company s share of ROIHL III: At December 31, Private equity partnerships $ 56,675 $ 23,211 Hedge funds Total $ 57,398 $ 23,468 The Company s equity in earnings on its investment in ROIHL III is as follows: Year ended December 31, Net investment income $ 1,188 $ 93 Net realized and unrealized losses on investments (708) (1) Net foreign exchange losses (215) (76) Equity in earnings of ROIHL III $ 265 $ 16 Included in equity in earnings of ROIHL III is $3.5 million of unrealized losses for the year ended December 31, 2015 ( $0.1 million). 20